ISSUES AND LEGAL RISKS OF NFTS, ESPECIALLY FOR LARGE BRANDS-PART-2
Given that NFTs are a relatively new prospect for consumer companies, the legal & reputational issues must be suitably regarded in the light of the enabling technologies used to deliver the NFT and associated commerce processes.
Rights of NFT Holder
NFTs vends with several ownerships and legalities.
An NFT’s legal status and treatment will rely on the nature of the rights provided when the NFT is minted and shared.
Regulatory Considerations
NFTs as Financial Products
Financial services include counselling, dealing and holding ‘financial products including, but not limited to deposits, derivatives, debentures, non-cash payment facilities and appeals in managed investment schemes (MIS). For example, in the minting of the NFTs or the active upgrade of the NFT in other markets. A meticulous analysis of the specific underlying configuration will be critical to appropriately characterizing the NFTs.
Anti-Money Laundering & Counter-Terrorism Financing (AML/CTF)
In 2018, NFTs (among other crypto assets) was fetched within the scope of Australia’s AML/CTF regulatory framework. Therefore, companies structuring their NFT releases should seek advice about AML/CTF reporting obligations.
Consumer Protection
The Australian Consumer Law (ACL) will also use NFTs marketed to Australian customers. Brands advertising their NFT offerings to Australian customers should ensure that they comply with their ACL obligations, including appropriate waivers regarding the risks of sponsoring in such digital assets. Otherwise, they may be at risk of committing misleading and deceptive conduct.
TAX
Trademarks involved in the sale of NFTs will also need to understand the tax consequences regarding their digital assets sufficiently. The ATO has noted that the tax treatment of NFTs will rely on its use and the reason its owner has for holding and transacting the NFT.
